Asia Morning View – Negative Fed Opinion Reflects in Markets – 03/12/2023

A preview of the day ahead in Asian markets. Asian markets are set to start the week on a high note, buoyed by a late rebound on Wall Street on Friday and lower expectations for US interest rates after Fed Chair Jerome Powell gave the clearest signal yet that the Fed is done raising interest rates and may decide soon. Raise interest rates. Pieces of it.

A rise in the S&P 500 to its highest level of the year and continued easing of financial conditions through a decline in the dollar and bond yields should pave the way for a positive open for Asian stocks and risk assets on Monday.

The dollar lost 3% in November, its largest monthly decline in a year, and fell last week for the third week in a row. The American treasurer has a 40-point offer based on the previous year – the most recent due date in March – and the implied contrats in the “SOFR” term of December 2024 will be paid by the 4% bar. First time.

It’s a real gut punch. Many claim that US bond markets and interest rates have become too excited and that the Fed will not ease policy so quickly and aggressively next year.

But Fed policymakers are currently in a “blackout period” ahead of their policy meeting scheduled for December 12-13. This means that there will be no direction from officials to pull the rug out from under investors’ feet, and certainly not on Monday, when the economic calendar is also very light.

It looks like Asian stocks could rebound – by some standards, underperformance in the region has rarely been of this magnitude in years.

Highlights on Monday’s regional calendar are New Zealand trade data, inventory data and Australian trade earnings, all for the third quarter.

Economists polled by Reuters expect New Zealand’s terms of trade to fall by 1.9% from the previous quarter, Australian inventories to fall by 0.6% and export volumes to fall by 3.8%.

The economic and political calendar for the rest of the week has plenty of other moments that could move markets, including interest rate decisions in Australia and India, inflation numbers in South Korea, the Philippines and Thailand, as well as GDP in Japan, Australia and the UK. South Korea.

On monetary policy, the Reserve Bank of Australia is expected to keep interest rates at 4.35% on Tuesday, its highest level in 12 years, according to 28 of 30 analysts polled by Reuters. The other two are based on an increase of 25 basis points.

The Reserve Bank of New Zealand surprised markets last week with the hawkish rhetoric that accompanied its decision to hold interest rates, and the Reserve Bank of Australia may echo a similar message.

Unlike the Fed, interest rate futures markets expect almost no rate cuts from the RBA next year. Indeed, the possibility of an increase in the coming months is greater than the possibility of a decrease, as current prices show.

Here are the key developments that could guide markets on Monday:

– New Zealand Trade (Q3)

– Australia: Shares and corporate earnings (Q3)

– South Korea Monetary Base (November)